5.VII MiFID II review

MiFID II requires the Commission, after consulting ESMA, to submit a report to the European Parliament and to the Council on the impact of the MiFID II equity pre-trade transparency requirements and, in particular, on the impact of the double volume cap mechanism.1 At the point of writing, the Commission issued a consultation paper on the matter.2 The final Commission Review is not yet available. ESMA has published a consultation paper and final review report on the MiFID II equity pre-trade (and post-trade) transparency requirements.3 The Commission consultation paper is at an early stage in terms of recommendations for the MiFID II equity pre-trade transparency regime. By contrast, ESMA provides detailed observations and proposals. For this reason, the paragraph emphasizes the ESMA MiFID II Review. The ESMA MiFID II Review includes the consultation and the final ESMA report.4 Some respondents considered the review to be very early in the particular context of both Brexit and COVID-19.5 Whatever the case may be, the ESMA MiFID II Review provides indications for the future direction of the MiFID II equity pre-trade transparency regime. The ESMA MiFID II Review is for this reason examined in this section below.

A main observation of the ESMA MiFID II Review is that equity pre-trade transparency has increased for some instruments, in particular, those previously outside the scope of MiFID I. However, ESMA believes that the overall objective of MiFID II to promote market transparency and a robust price formation has not been fully achieved.6 In addition, ESMA observes that the equity pre-trade transparency regime is too complex, especially in relation to the RM and MTF waivers (including the double volume cap) and the MiFID II share trading-obligation. Along similar lines, a main theme of the ESMA MiFID II Review is to enhance the level of equity pre-trade transparency available for market participants while aiming to simplify the complexity of the current regime. The ESMA MiFID II Review emphasizes three main categories of the current MiFID II regime, namely: (1) the MiFID II equity pre-trade transparency regime for RMs and MTFs, including the double volume cap, (2) the MiFID II equity pre-trade transparency regime for SIs, and (3) the MiFID II share trading obligation. Although not an explicit category of the ESMA MiFID II Review, ESMA also addresses: (4) the functioning of the MiFID II Databases (FIRDS, FITRS, DVC Database, and the SI Database). Given the importance of these databases for the MiFID II equity pre-trade transparency regime, the databases are also examined below.